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Shares in China’s biggest online gaming companies recorded substantial losses on Friday after Beijing fired a volley of new measures to tighten control of the world’s largest gaming market.
In a set of proposed guidelines, the National Press and Publication Administration, China’s gaming regulator, said it would curb excessive consumption, referring to time and money spent on games.
Tencent, China’s biggest company by market capitalisation, tumbled 12.4 per cent, the sharpest one-day drop for the company in 15 years. Gaming accounts for about 30 per cent of the group’s revenues. Shares in rival NetEase were down more than 24 per cent in Hong Kong, setting up the company’s US stock for the steepest daily fall since its Wall Street debut in 2010.
Those falls helped drag Hong Kong’s Hang Seng Tech index of large Chinese tech stocks down 4.4 per cent on the day, bringing the gauge’s year-to-date losses to more than 14 per cent. In Seoul, South Korean gaming developer Krafton fell more than 13 per cent.
“This was supposed to be a quiet day before Christmas and now you’ve got big, big [trading] volumes going through,” said the trading desk head at one investment bank in Hong Kong. “I haven’t seen moves like this in these names before.”
China’s online gaming industry is the biggest in the world with about 650mn users and annual revenues of $45bn last year, according to Goldman Sachs.
“Everybody is shocked [by the proposed regulations],” said Chenyu Cui, a Shanghai-based analyst with Omdia, a technology research group.
China’s regulators have in recent years focused on restricting the exposure of Chinese children to online gaming, but Friday’s announcement marked a significant new effort to curb adult spending, she added.
Vigo Zhang, vice-president of Tencent Games, sought to play down the impact of the new proposed regulations saying they marked “no fundamental changes” for its business model. NetEase declined to comment.
Goldman Sachs analysts noted earlier this year that Chinese gaming developers have “centred their attention” on revenue generation from in-game microtransactions. These features, the bank’s analysts said, held greater revenue growth potential than traditional games played on consoles or personal computers, where there has been a struggle to raise the prices of titles.
Cui also said that a core marketing focus of many gaming groups has been promotions to reward consumers for consecutive days of play and account top-ups, features which appear to have been directly targeted by the regulator.
One former Tencent employee said proposed curbs on the amount of money people could spend topping-up their online gaming accounts would be painful for the gaming companies.
“Many games rely on a small number of wealthy players for revenue through in-game purchases. If there are restrictions on top-ups, it will significantly impact the game’s income,” he said, asking not to be named.
The gaming platforms have been squarely in Beijing’s crosshairs since 2021, as part of President Xi Jinping’s sweeping “common prosperity” campaign to reform social values in China and bring the country’s tech giants more firmly under Communist party control.
At the height of the crackdown, Chinese state media labelled gaming as “spiritual opium” and regulators halted approval of new gaming titles for nearly a year. Chinese children were also banned from playing video games for more than three hours a week, a measure that was difficult to police.
Since April 2022, however, Beijing has resumed the approvals process for new online games, part of a broader reprieve for tech companies amid slowing economic growth in China.
Separately, China’s Ministry of Public Security said on Friday it was launching a new crackdown into the proliferation of online rumours in China. Officials said their efforts would be particularly targeted at celebrities and the management of internet platforms.
Additional reporting by Nian Liu in Beijing